Facts about Coastal Alabama`s Homeowners` Insurance Crisis

Facts about
Coastal Alabama’s
Homeowners’ Insurance Crisis
and
The Solution.
It’s time to FIX this Crisis -- Not Dabble at it
(Based on the hhii Best-Case Scenario)
Let’s get a couple
important facts
out of the way,
first.
Despite the increase in natural disasters,
the U.S. insurance industry was the richest
it has ever been in March 2011.
($ Billions)
US Policyholder Surplus:
1975–2011*
Surplus as of 6/30/11 was a near-record $559.1
down 1% from the record $564.7B as of
3/31/11, but up 27.9% ($122B) from the crisis
trough of $437.1B at 3/31/09. Prior peak was
$521.8 as of 9/30/07. Surplus as of 6/30/11 was
7.1% above 2007 peak.
“Surplus” is a measure of
underwriting capacity. It is
analogous to “Owners
Equity” or “Net Worth” in
non-insurance organizations
Source: A.M. Best, ISO, Insurance Information
Institute. * As of 6/30/11.
Dr. Robert Hartwig slide
They’re nowhere near
going broke.
Another fact to get behind us . . .
156
Companies write Homeowners Insurance in Alabama.
A lack of competition is not the problem  Who are Plan Members? All licensed insurers writing P&C coverage insurance in Alabama
• Current Members (Plan year 2011)
• 
• 485
Companies
• 329 Exempt from participation
306 write no P & C in AL
• 156 Companies are subject to assessments ranging from .0001% up to 19.5546%
• 69 Companies report voluntary written premium in eligible areas
• 23 voluntarily write sufficient coastal property to be exempt from AIUA assessments
• 
11/21/2011 Alabama Insurance Underwri6ng Associa6on If Money’s not the Problem
&
And Competition’s not the problem?
...
What
is
The Problem?
The Problem:
An Alabama Department of
Insurance (DOI)
Lack of Information & Bias . . .
. . .that leads to unfair price
Discrimination
Against the Coastal Counties.
In 2006
When this Crisis Started
the coastal counties
Paid the State Average.
The Alabama Average today is about
$850
a year
Alabama Coastal Premiums today
Are 250 to 325% Higher
than other Parts of the State.
ALABAMA HOMEOWNERS RATES
Average Premium Relativity (with Wind) by City for a $200,000 Home:
Birmingham (35242) = 100%
Huntsville (35801)
= 110%
Montgomery (36117) = 111%
Tuscaloosa (35401) = 120%
Camden (36726)
= 135%
Gadsden (35901)
= 136%
Dothan (36301)
= 139%
Saraland (36571)
= 263%
Mobile (36608)
= 294%
Bay Minette (36507)
= 300%
Fairhope (36532)
= 311%
Gulf Shores (36542)
= 328%
In 2006
(the time of abundant news about Global Warming)
The DOI decided Alabama’s coastal counties
would be wildly more expensive to repair than
the rest of the state.
Warmer oceans would make hurricanes
more frequent and damaging.
The Alabama DOI allowed Insurance Companies to
Introduce
Wildly Experimental
Hurricane Catastrophe Models
Coastal Insurance Prices skyrocketed
10,000s of Mobile and Baldwin Families were Dumped
10,000s of Coastal Families are Now
Functionally Uninsured or have simply Dropped
Their insurance Altogether.
Some have Lost their Homes.
$200 million premiums in excess of
the State Average is siphoned out of our Two Counties
each year. That’s a lot of Jobs.
?
Was the DOI right?
Are
Coastal Counties
REALLY
300% more Expensive
To Repair
Than the Rest of the State?
In 2006
The Wildly Experimental
Hurricane Catastrophe Models
predicted
$60 billion
in US hurricane losses over the forthcoming 5 years
(from 2006 – 2010)
Karen Clark – the Inventor of the Models – found that the actual losses were only $15 Billion. (The models overpredicted losses by $45 billion.) Karen, -­‐-­‐ The Inventor of the Hurricane Catastrophe Models -­‐-­‐ Has Repudiated her Inven6on, And proposed a New Way. In 2011
RMS
A company that Predicted
$67 Billion in Losses
Dramatically Revised its
Hurricane Catastrophe Model
Their colored map shows the
effects of their revisions.
The modeler Overstated the
costs in Mobile & Baldwin
counties 50%.
& Understated the costs
inland by as much as 400%. Is the Coast
REALLY
More Expensive to Repair than Inland?
If not. . .
then Coastal Alabama
Should pay the State Average
Like it always Paid
In the Past
$850
a year
There’s more. . .
As RMS figured out,
When hurricanes strike Alabama’s coastal counties,
they don’t stop at the county line.
Hurricanes do
significant inland damage,
too.
FEMA declared 65 of Alabama’s 67 counties
Disasters after Hurricane Ivan
Alabama’s Disaster Coun6es aaer Hurricane Ivan Designated Counties for Alabama Hurricane Ivan
Disaster Summary For FEMA-1549-DR, Alabama
Declaration Date: September 15, 2004
Incident Type: Hurricane Ivan
Incident Period: September 13, 2004 through September 30, 2004 Individual Assistance (Assistance to individuals and households): Autauga, Baldwin, Barbour, Bibb, Blount, Bullock, Butler, Calhoun, Chambers, Chilton, Choctaw, Clarke, Clay, Coffee, Colbert, Coosa, Conecuh, Covington, Crenshaw, Cullman, Dale, Dallas, DeKalb, Elmore, Escambia, Etowah, Fayebe, Franklin, Geneva, Greene, Public Assistance (Assistance to State and local governments for the repair or replacement of disaster-­‐damaged public facili6es): Hale, Henry, Houston, Jackson, Jefferson, Lamar, Lauderdale, Lawrence, Lee, Limestone, Autauga, Baldwin, Bibb, Bullock, Butler, Calhoun, Cherokee, Chilton, Choctaw, Clarke, Cleburne, Coffee, Colbert, Conecuh, Coosa, Covington, Crenshaw, Cullman, Dale, Dallas, Dekalb, Elmore, Escambia, Franklin, Geneva, Greene, Hale, Houston, Jackson, Jefferson, Lamar, Lawrence, Lee, Lowndes, Marengo, Lowndes, Macon, Madison, Marengo, Marshall, Marion, Mobile, Monroe, Montgomery, Marion, Marshall, Mobile, Monroe, Montgomery, Perry, Pickens, Pike, Shelby, Sumter, Talladega, Tallapoosa, Tuscaloosa, Washington, Wilcox, and Winston Coun6es for assistance for debris removal and emergency protec6ve measures, including direct Federal assistance, at 100 percent Federal funding of the total Morgan, Perry, Pickens, Pike, Randolph, Russell, Shelby, St. Clair, Sumter, Talladega, eligible costs for a period of up to 72 hours. Tallapoosa, Tuscaloosa, Walker, Washington, Wilcox, and Winston Coun6es. Hazard Mi6ga6on Grant Program (Assistance to State and local governments for ac6ons taken to prevent or reduce long term risk to life and property from natural hazards): All coun6es are eligible to apply for assistance under the Hazard Mi6ga6on Grant Program.
FEMA Disaster Summary For FEMA-1549-DR, Alabama
Two-thirds of all claims after Ivan were made north of Mobile and Baldwin counties,
according to a source cultivated by Alabama State Senator Trip Pittman. Some hurricanes do more damage inland
than on the coast.
The eye of Hurricane Katrina,
skipped Alabama’s coastal counties,
curved from the Mississippi Coast back east
to clip the northwestern corner of Alabama,
the only part of the state that the “eye” touched.
Your tax money being spent for Katrina Relief in
Tuscaloosa.
Mid-­‐day – Aug 28 – Began to Dissipate 8:30am – Aug 26 – Landfall in LA 8:50am Aug 24 – Landfall in FL Hurricane Andrew behaved in a similar way Hurricane data alone suggests inland Alabama incurs
more wind losses than the models predict.
And they just deal with
Hurricanes alone.
What about
Other Kinds
Of wind-and-hail events?
2011 Catastrophic Homeowners* Claim Activity
in Alabama, by Event**
Alabama suffered
Five
Date
Perils
Avg. Pmt $ Total $ Pd. # Claims HO $ % HO # %
Event Total
2011:Q1 Total
“Catastrophic”
Wind or Hail events in
2011 – not just one.
Four others in addition to
the April 27 Tragedy.
Event Total
Event Total
Event Total
2011:Q2 Total
It suffered significant wind
damages in
2009,
Too.
Event Total
2011:Q3 Total
2011 YTD Totals
**Through Dec, 7, 2011.
Source: PCS Division of ISO.
*Includes all categories of dwelling policies,
such as home, condo and renters’ policies
“Alabama averaged
59
tornadoes each year from 2000-2010. . .”
Tornado Tracks by Enhanced Fujita
(EF) Scale, January – July 2011
Alabama averaged 59
tornadoes per year
from 2000-2010, but
128 from Jan. – July
2011, the highest in the
country
AL had the highest
concentration of EF-3,
4 and 5 storms in 2011
Source: NOAA at: http://www.spc.noaa.gov/wcm/2011-jan-jul.png
12/01/09 - 9pm
eSlide – P6466 – The Financial Crisis and the Future of the P/C
Alabama averaged 1 Hurricane
every 11 years during the 20th Century
59 (Tornadoes a Year)
X
11 (Years between each Hurricane) = 649
Tornadoes per Hurricane
Are the
Coastal Counties
REALLY
?
More expensive to Repair
Than the rest of the State?
Severe Weather Reports in Alabama,
January 1—December 5, 2011
In 2011 alone,
In Alabama alone,
There were
There were
1,288 severe
weather reports
in AL through
Dec. 5
217
“severe” Hail reports
170
Tornadoes
901
Source: NOAA Storm Prediction Center;
http://www.spc.noaa.gov/climo/online/monthly/2011_annual_summary.html#
Other “severe”
wind reports
Are the Coastal Counties
REALLY
More expensive
?
How do we answer that question? Simple
Compare the costs to repair the coastal counties with
the cost to repair inland counties.
So.
Why not do this?
Because the
Alabama Department of Insurance
does
not
collect data
on a county-by-county basis. Huh?
The DOI suddenly allows
Companies
to charge Coastal Counties
300%
more than the rest of the State,
And . . .
It does
Not
Have any of its own supportive,
county-by-county
historical data justifying this
Unquestioning use of wildly experimental catastrophe models
and huge change in price? Is a Pattern Emerging? The DOI allows companies to
charge Coastal Counties more
for . . .
FIRE
Insurance,
Even though they know
there is no
actuarial justification
for the difference. Alabama Law requires
that the DOI
insure fair pricing practices.
ALABAMA RATE STATUTES
Alabama statute says that rates must not be: * Excessive * Inadequate * Unfairly discriminatory • 
It’s time to require that the DOI follow the law
It must quit
Guessing
That the Coastal Counties are
more expensive than the rest of the state.
It must quit
Discriminating
against the Coastal Counties.
It’s time that the DOI treat all Alabamians fairly.
Like the law requires.
What’s needed is the
The Clarity Bill.
It allows us to do the math.
It requires the DOI to
collect,
Aggregate,
and publish on- line,
by zip code and peril:
a) dollar amount of claims
b) dollar amount of premiums
c) total number of Policies
And
d) to use this historical data as a guide
when determining fair premiums statewide.
With this data we can compare actual losses around the state. It will serve as a plumb line to check the wildly experimental models. Are we really more expensive
than the rest of the state. . .
Let’s quit guessing
And
Do the Math
What you can do . . .
Before the Coastal Counties can speak persuasively
to the rest of the state,
The Coastal Population and Leaders must be united
behind the
Solutions.
Presently our leaders – from elected officials, to civic
club officers, to chambers, to pastors, to media – are
all over the map regarding solutions.
This must change.
YOU have to require it. What you can do . . .
Get on the HHII email list and stay informed.
Pay close attention to proposed
solutions
and decide if your legislators and state officials are
proposing something that fixes the crisis. . .
Or only dabbling at it
Repudiate the Governor’s
“Affordable Homeowners Insurance Commission,”
if it does not deliver a solution.
Make your repuidation loud and clear.
Occasionally come to hhii meetings in your area.
What else you can do . . .
-- Especially come
to public meetings
when HHII brings
in people who
have the power
to make change.
-- Get on a
committee.
Sign up tonight.
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